Policy, Guns and Money

The surface fleet: the question of numbers

A question of numbersLate last month, Ben Schreer introduced ASPI’s upcoming international conference on Australia’s Future Surface Fleet. In doing so, he observed that many factors—strategic, operational, international and industrial—will shape decisions about the Navy’s future surface fleet. He could also have added politics to the mix—as the recent extraordinary machinations surrounding the role of ASC in the submarine program clearly demonstrate.

It’s a fact of life that domestic politics will play a role in shaping the backbone of the surface fleet through the future frigate program. Not just by making it highly likely that the vessels will be built in Australia, but possibly also by expanding the size of the program to facilitate the ‘continuous build’ of vessels (with a fleet of only 11 surface combatants, a continuous-build program would result in either a wastefully truncated life-of-type or an inefficiently slow rate of production).

A fleet of 20 surface combatants would plausibly support a continuous-build program; one vessel could be built every 18 months and retained for 30 years. But do we really need 20 surface combatants? For that matter, do we need 12 submarines? It’s one of the classic questions of defence planning; how much is enough? Read more

Ask Defence about planned fleet sizes and you’ll be told that periodic Force Structure Reviews use sophisticated analytic techniques to determine vessel numbers based upon their utility in specified scenarios (which are, naturally, classified). Sounds reasonable, but where do the scenarios come from? They’re derived from an overarching classified document called the Defence Planning Guide which is updated annually and approved by government. An outline of Defence’s labyrinthine internal planning processes can be found here and here.

Importantly, while the scenarios are almost certainly informed by the latest intelligence analysis, they’re not independently produced ‘intelligence products’ as such. Rather, they’re policy constructs generated via Defence’s internal risk-assessment process. That means Defence’s planners live in a closed loop where they ultimately set their own goalposts. If you control the scenarios, and the scenario testing is deterministic, you control the outcome in terms of platform numbers. There’s even a pertinent term-of-art within the military for getting the answer you want via analysis, it’s called ‘situating the appreciation’.

In case I’m not being clear, I contend that there’s precious little real analysis underpinning the size of the ADF—apart from the balancing of complementary parts of the force that rely upon each other to be effective. I expect, for example, that we sensibly plan on having enough support vessels to sustain the deployment of the remainder of the surface fleet. But as to the size of the surface fleet, it’s more an artefact of replacing what we’ve got and living within financial constraints—or taking advantage of extra money when it becomes available—than objective strategic analysis.

As critical as what I’ve said might sound, I don’t have a better proposal. In principle, we could take the formulation of scenarios out of the hands of the policy wonks and give it to the Defence Intelligence Organisation to produce free of policy influence. But that would be as flawed as the present arrangement; the implicit assignment of priorities to prospective contingencies is inherently a policy rather than intelligence function. If I were to suggest any changes to the present regime, it’d be to save some money by simplifying the bureaucratic busy-work that does little more than the old magician’s trick of telling us the number we first thought of.

There’s no way around the underlying problem. The scale of the ADF is arbitrary because we don’t have a concrete threat to plan against in terms of our stated core goal of ‘defending Australia’. With nobody on the horizon to play the role of invader, we can’t scale ourselves against the task. There are worse problems to have.

Of course, there are a range of credible but lesser contingencies that we have to worry about; deployments to the Middle East for example, or support to US maritime forces in the Pacific. But in each case, we’re inevitably going to be but a small part of a larger effort where our military impact is not decisive. The sorts of contributions we’ve made to recent coalition missions, and those we’re likely to make in the future, aren’t large enough to provide a scale for the ADF.

So where does that leave us when it comes to the size of the future surface fleet? My conclusion is this: while we need to ensure harmony between the complementary elements of the force, it’s an illusion to think that the numbers of platforms we have today, or might be planning for tomorrow, are sacred.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Flickr user Korry Benneth.

Whither 2%?

Tony Abbott visiting troops abroad in January, 2015.A lot has happened since September 2013 when Tony Abbott promised to boost defence spending to 2% of GDP ‘within a decade’. The economic outlook has deteriorated, government revenues have fallen, and the Senate—like many in the electorate—has rejected key elements of the government’s first budget. And in what feels like Groundhog Day, we’ve lost yet another defence minister and almost lost another prime minister. None of that bodes well for the 2% promise.

The government is being squeezed on two fronts. A deterioration in Australia’s terms of trade and other adverse economic developments have cut projected revenues by $37.8 billion (here and henceforth, all figures are over 4 years). To make matters worse, negotiations in the Senate have lead to $7.2 billion of additional spending and $3.4 billion of foregone savings due to delays. If that weren’t enough, there’s a further $34 billion in savings stalled in the upper house. Read more

In an attempt to rein in the burgeoning deficit, the government introduced $4.1 billion of belt-tightening measures late last year, including a $3.7 billion cut to foreign aid. The bottom line is hardly encouraging; between May and December the forecast deficit over the next four years grew by $44.3 billion. And unless the Senate promptly passes the $34 billion in stalled savings measures, further hits to the budget will follow. Add to that the increasingly gloomy economic outlook, and the prospect of returning to surplus this decade looks unlikely.

Just as fiscal pressures have grown, so to have political pressures. The electorate is restive and volatile. The extraordinary success of minor parties in the 2013 election reflected diminishing faith in and allegiance to the major parties. Consistent with that, voters at the state and federal level have been willing to redirect their support dramatically in recent times. Consider Queensland, in 2012 the Bligh government suffered a swing against it of 15.6%, three years later the Newman government suffered an adverse swing of 8.2%.

While there’s no escaping the conclusion that the electorate is responding to the performance of government (as it should), other factors are at play. For example, technology and commercial pressures have created a 24-hours news cycle of unprecedented ferocity. A larger problem—in my view—is that the electorate is yet to adjust to the new economic reality.

During the latter years of the Howard government the resource boom provided the government with windfall revenues year after year. The government was in the happy position of dividing up an expanding pie to grateful voters. Income tax fell, transfer payments grew, and Defence got so much money that they literally handed some of it back unspent. Even when the financial crisis hit, Keynesian ‘pump priming’ ensured that few people felt hard done by.

Fast-forward to 2015, and the bill has arrived. While the Howard government had the happy task of spreading joy, the sombre responsibility of government today is to share pain. While there’s more to be done to boost productivity and enhance the efficiency of service delivery, the books won’t be balanced without substantive belt-tightening. With the electorate barely weaned off the resource boom, it’s a hard sell.

So what does this have to do with the plan to boost defence spending to 2% of GDP? Put simply, every extra dollar spent on defence requires some combination of higher taxes, increased debt and diminished government services. With the fiscal outlook deteriorating and the electorate voicing its impatience, the task of elevating defence spending to 2% of GDP is getting harder by the day.

Absent an international crisis to demonstrate the risks Australia faces, sustained increases to defence spending will be feasible only if the government makes the case. To date, that’s not occurred. Indeed, even during the election campaign the 2% target was used as little more than a totem.

Others have explained why 2% of GDP is a poor basis for defence funding, but it would indeed be a wondrous coincidence if the risks Australia faces could be efficiently mitigated with 2% of GDP—not one cent more or one cent less. Nonetheless, there’s one sense in which the 2% promise matters a lot: in terms of being taken seriously by other countries and in particular our ally the United States.

The Rudd government’s 2009 Defence White Paper set out an expansive vision of a larger and more capable ADF, but successive cuts to defence funding made the plan laughable. Regrettably, the 2013 White paper did nothing to rectify the sorry situation. We talked big and then failed to deliver. Here’s the problem. If the Abbott government ditches the 2% promise, we’ll once again look like blowhards who don’t take national defence seriously.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Twitter user @TonyAbbottMHR

AWD: time for Plan B

DeckchairsYesterday the government made two announcements about naval shipbuilding. The first was its plan to fix the ailing Air Warfare Destroyer program. What emerged wasn’t the approach foreshadowed in the press a few months ago, in which a single commercial entity—BAE was the hot favourite—would take control. We explained the pros and cons of that approach here on The Strategist.

Putting the project under a single company would’ve resolved the distributed responsibility under the current alliance framework and removed the government from being on both sides of the contract. It certainly looked headed that way, with the government appointing merger and acquisition specialists as advisors on the project. But in the end that wasn’t the approach chosen. Instead, bets have been redoubled, in that the parties that collectively brought the AWD program to its current point will continue in a revamped management model. According to the media, the Finance department (owner of ASC) put the kybosh on bringing in outside management.

There are three components to the AWD remediation plan. First, the Spanish design house Navantia—which inexplicably was left out of the alliance when it was created—will take on an enlarged role. This ought to help streamline the communication between designers, production engineers and the shopfloor. The second component is insertion of more shipbuilding experience into the project by involving BAE, which was formerly only a subcontractor for modules, in project management. Third, existing alliance member Raytheon will take on an expanded role in supply chain and corporate management. Read more

It’d be strictly inaccurate to describe the plan as simply rearranging the deckchairs, but it’s not far from it. If anything, this latest initiative further clouds the already diffuse governance arrangements inherent in the alliance. And there’s only a handful of new people being brought in: 20 from Raytheon, 11 from Navantia and only 8 from BAE.

The government describes this as an ‘interim arrangement’ and says ‘no decisions have yet been made about the long term arrangements for the Air Warfare Destroyer program’. A lot is at stake. Aside from the $8.5 billion project itself, further domestic naval shipbuilding projects depend upon improved performance. Basically, the government has said that if the project can’t get up to speed by the middle of next year, it won’t guarantee further work.

And although we noted earlier that there’s been apparent improvements to shipyard productivity (and to submarine support), yesterday’s announcement slipped the delivery dates for the vessels by another nine months. The first two vessels will now be 30 months late and the third a full 3 years. So while we’re told that productivity is improving, the AWD schedule is moving in the opposite direction.

The second of yesterday’s announcements was a plan for the creation of a ‘sustainable shipbuilding industry that supports shipbuilding jobs‘. The plan has three parts, fix the AWD project, create a shipbuilding industry around the future frigate (contingent on productivity improvements), and create a ‘sovereign submarine industry’.

What’s a sovereign submarine industry? Not unreasonably, one might assume that it has something to do with building submarines in Australia. So the media asked the question—repeatedly—but to no avail. The exchange is available in transcript and on video. The best the fourth estate could get from the Minister was that specific announcements would be made in due course. It was left to the Prime Minister to clarify the matter later in the day (pay wall) in terms of submarine fit-out and maintenance being done in South Australia.

Yesterday’s confusion adds little to what we know about the government’s thinking about the way ahead. Rather, it continues a pattern whereby even the options under consideration are kept secret. While that’s perhaps understandable given the highly charged politics surrounding future naval acquisitions, it’s unlikely to deliver good policy.

There are many difficult policy choices ahead; choices that will shape the navy out to mid-century at a cost of tens of billions of dollars to the taxpayer, and we need to have an informed debate on those issues. At the moment, the policy debate is being overshadowed by parochial politics and handicapped by an acute absence of information. Yesterday’s announced ‘plan that will create a sustainable naval shipbuilding industry’ amounted to a mere 153 words.

Specific matters are easy to identify. Apart from fragmentary and unverified leaks, we don’t know what the White-Winter report recommended for fixing the AWD program, and we don’t know the range of options and acquisition strategies under consideration for either the future submarine or future frigate. Similarly, we don’t know the benchmark against which AWD productivity will be measured in deciding the future of local naval shipbuilding.

There’s not time for a green paper let alone an independent review to sort things out, but there’s no reason why next year couldn’t begin with a full ministerial statement on naval shipbuilding that fills in the many blanks.

Andrew Davies is senior analyst for defence capability and director of research, and Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Flickr user Nick Herber.

Graph(s) of the week: F-35 costs re-re-revisited

While the Australian Government has already made its decision to go ahead with procuring a total of 72 F-35 Joint Strike Fighters, there’s still cause to watch the progress of the development program. Australia will most likely take delivery of the bulk of its aircraft about five years from now, which given the lead times for major components, means we’ll start paying for them around 2017 or so. But at the moment we don’t know what the final bill will be, so ASPI will continue to monitor the F-35 cost data.

I’ve reported on F-35 costs and schedules a few times before on The Strategistmost recently after the release of this year’s USAF budget papers. That contained some good news, pointing towards stability in program costs over the past few years. But the USAF is far from being a dispassionate observer of the F-35 program, as it’s in desperate need of new aircraft to recapitalise its tactical fleet. So it’s worth looking at the data provided by the Government Accountability Office (GAO) as well. Read more

The Pentagon and the GAO have often seen the F-35 program through quite different lenses. The GAO was especially critical of the management and performance of the program in the period 2002–2010, while the Pentagon tended to play down the problems. The verdict of history is pretty unequivocal on that one: the GAO was right, and after the program breached a Congressional threshold for cost overruns in 2010 it was subjected to a major re-baselining.

Since then, things have been running relatively well. The program has had some setbacks—including the grounding of the fleet due to an engine fire earlier this year—but seems to be tracking more reliably than was previously the case. We can be more confident of that than was formerly the case because, significantly, the Pentagon and GAO figures are now telling the same story.

Let’s start with the program cost—the total amount required for all of the R&D as well as the production of the aircraft and the ancillary equipment required to operate it. To an extent that’s not Australia’s problem, as we won’t pay any extra for R&D because of our membership of the F-35 international program. We’ll only pay for the aircraft and related equipment, not for further development work. The US shoulders that alone, which is why the program cost gets the attention of Congress. In the worst case, that could cause American procurement numbers to be cut, production rates to be slowed and unit prices to go up for all customers.

Figure 1 shows how the F-35 is tracking compared to the disastrously expensive F-22 and the successful F/A-18 E/F Super Hornet programs. The graph shows indexed costs, relative to the initial program estimates. As F-22 R&D costs spiralled upwards, numbers were cut successively from over 700 to 188 when production ceased—and the gross cost per aircraft ended up at over US$400 million (today’s prices) as a result. After tracking the same way for a while, the F-35 is showing signs of levelling out. We have to be a little careful, because development programs often look stable for a while before jumping upwards again, but the recent trends are good.

Indexed unit program cost (2)

Figure 1. Indexed program costs for three American tactical aircraft programs. Source: Pentagon Selected Acquisition Reports.

Figure 2 shows the average procurement cost per aircraft, which is the price without the R&D component. The figures are averaged over all three types of the F-35, and Australia is buying the least expensive, so the graph over-prices the Australian purchase. The trend since the 2010 baseline was established is downwards, once we allow for a time lag in the GAO data because they work on Pentagon data from the previous reporting period. That’s a first for the F-35 program, but is a feature also visible in the Super Hornet data once that program reached maturity. The GAO observes that ‘the production line continues to show efficiencies and quality metrics show positive trends’, consistent with the Pentagon reporting US$11.5 billion of savings (about 3% of the total cost) due to more efficient processes.

F-35 average unit procurement cost

F-35 average procurement cost as reported by GAO from 2002. Source: Annual GAO Assessments of Selected Weapon Programs (2014 here)

Finally, a caveat. The GAO reporting notes that critical technologies for the F-35 aren’t yet mature, and that a substantial amount of testing remains to be done—all while production is ramping up:

The F-35 program … plans to have 530 aircraft, more than 20% of its total procurement quantity, under contract at a cost of approximately $57.8 billion before developmental testing is completed in 2017.

Until all of the testing is complete, we can’t be completely sure of the future trajectory of the F-35 program metrics, so we’ll be keeping an eye on them. But for now the report card would read ‘has made significant progress—must stick with it’.

Andrew Davies is senior analyst for defence capability and director of research at ASPI. Graphs courtesy of Andrew Davies.

A big boat doesn’t equal amphibious capability

The largest ship ever built for the Royal Australian Navy, Landing Helicopter Dock NUSHIP Canberra, passes through Sydney Heads for the first time. She will be commissioned into the RAN as HMAS Canberra. Today’s a great day for the Royal Australian Navy and the Australian Defence Force. It marks the commissioning of that $1.5 billion, 27,800-tonne behemoth soon to be known as HMAS Canberra. But as much as I hate to rain on this parade, Australia is still some time and many tough decisions away from true amphibious warfare capability. The ship is just a ‘host’ that enables the capability. Political and military leaders will need to take a  two-year appetite suppressant to consider organisational changes and the purchase of additional equipment. When the party on Garden Island ends tonight, the real work continues.

The ADF’s stated goal is to have an Amphibious Ready Group (ARG) capability by 2017. That might sound like plenty of time. But amphibious operations involve a complex and dangerous choreography and the seamless integration of joint military services. World-class amphibious players develop over decades. The US, UK, France and others have joint organisations consisting of service units dedicated solely to this kind of operation and have built an organisational culture around them. Amphibious warfare is a truly joint enterprise, requiring diligent and detailed integration of the three services.

The ADF is driven by the individual services and lacks the organisational mechanisms and culture for joint capability development. It will have to overcome those internal obstacles to get from naming a really big boat to conducting amphibious manoeuvres under non-permissive conditions. Here are a few issues to be addressed.

Read more

The LHD is a helicopter-centric ship. Its flight deck is big, but its dock is small compared to US or UK amphibious ships, and it will normally carry only four small landing craft. But the landing-force order of battle is vehicle-centric.  Will the Land 400 program include the purchase of vehicles that can swim or that are light enough to be lifted by helicopters in order to relieve strain on the ship’s limited landing craft?

The current landing-force vehicles weren’t designed for wading and can tolerate only about two feet of water. That could be ameliorated by a beach recovery-vehicle to drag drowned vehicles ashore and push off stuck landing craft but the ADF hasn’t got any of those. A large hovercraft could potentially eliminate the problem altogether but Canberra’s dock is the wrong type for those.

If Australia is to achieve its stated capability goals, it’ll need to have someone with sufficient authority to champion the cause when it clashes with perceived single-service interests. At present, the Joint Capability Authority has a coordinating role only and actually doesn’t manage any capabilities or major procurement programs.

Then there are helicopters. HMAS Canberra is apparently capable of holding 18 helicopters (depending on the type of helicopter). Unfortunately, it’s not as simple as placing a helicopter on a ship. Twenty years ago, the US Army found that out the hard way when it placed helicopters on two US aircraft carriers for Operation Uphold Democracy in Haiti. Most of those helicopters had to be junked after the operation because they weren’t properly ‘marinised’.

Of course, there are degrees of marinisation. While there has been much criticism of the Army’s MRH-90 model helicopters, those aircraft were chosen largely because they were deemed to be better for amphibious operations. Key features like their composite frame (which doesn’t corrode) and blade brakes make them more conducive to operations at sea. But an ANAO audit recently noted that the MRH90 aircraft ‘has metal parts that corrode, ranging from rivets in the tail assembly to complex assemblies in the landing gear, engine and transmission’. Additionally, the aircraft lacks automatically-collapsible blades, making flight deck evolutions slower and inherently more dangerous, potentially halving the force projection rate. The ARH-90  wasn’t designed to go to sea and will present all these problems plus some more of its own.

Finally, there’ll be support force and enabler issues. The ADF has already dedicated 2 RAR as its amphibious infantry force. But deep amphibious expertise is needed in supporting arms and services, notably intelligence, logistics, aviation, and engineering. The present intent is to draw those from non-specialist brigades as required.  The current Plan ‘Beersheba’ will see them rotate out of that role every year (say it isn’t so).

These issues aren’t showstoppers, but coming up with solutions, techniques, and procedures to mitigate them inside two years will require an intense effort. It means prioritising resources and training and that will inevitably have impacts elsewhere. Whether the individual services are willing to accept those impacts will be the true test of whether the ADF is serious about its amphibious capability.

Yes, the boat is impressive. But it’ll be the teamwork, sacrifice, and leadership needed to build a real amphibious capability that will truly impress. If Australia’s leaders try to use this capability before it’s properly prepared, the results will be disappointing. Fixing some organisational deficiencies and giving more attention to the capability associated with this project will help.

Lieutenant Colonel Jan K. Gleiman is an active duty US Army officer and a visiting fellow at ASPI from United States Pacific Command. These are his personal views. Image courtesy of Department of Defence.

The costs of cutting steel

A young woman arc welding part of an anti-tank gun in a munitions factory in South Australia in 1943.

In 2013, the early replacement of the Anzac frigates was proposed as a way to bridge the shipbuilding ‘valley of death’. The idea was to continue building AWD hulls and equip them with a combat system based on the Anzac upgrade now underway.

Even starting tomorrow, it’s doubtful that such a scheme would preserve more than a subset of white-collar jobs at the shipyards. Yet the idea survives, and has grown into an ambition for a continuous-build program involving as many as twenty vessels. The number of hulls has grown because a continuous-build program has to be fed by the taxpayer, either by routinely retiring vessels before their economic life or by building a larger fleet than the RAN needs.

But the imperative for domestic shipbuilding is weak and the costs would be high, so why does the idea persist? Two factors are at play: lobbying by incumbent firms and the politics of South Australian jobs. The latter is especially potent given the likely foreign build of the Collins replacement. As for the expense of jettisoning recently-upgraded Anzacs, the consoling thought is that we could bolster regional maritime capabilities by gifting vessels to Indonesia and potentially selling others to New Zealand. Read more

What would the proposal cost? That depends on many factors, including the reduced life and/or increased number of the surface combatants. Then there’s the competiveness of local shipyards.

The head of DMO recently testified to a Senate inquiry that ‘a productive yard, building continuously’ could have built the first AWD in 3 million work-hours, and that 4.7 million had been allowed for the local build’s cold start, yet the current estimate for the first vessel stood at 9.3 million. Using the per-capita annual cost of labour at ASC ($132k) and the estimate of 2,000 annual hours per worker from 2013 Submarine Skill Plan, the additional cost of the first vessel can be estimated (excluding shipyard overheads and material costs for rework):

Work-hours Labour cost
Continuous production 3.0 million $198 million
Originally planned 4.7 million $310 million
Now expected 9.3 million $615 million

Thus, on the basis of labour costs alone, we’ve spent at least $305 million more than planned, and $417 million more than best-practice for the first vessel. I say ‘at least’ because Australia has high wages. The US Bureau of Labor Statistics ranks Australia 6th out of 34 OECD countries in hourly compensation for manufacturing, and 7th out of 16 for the sub-category including shipbuilding.

It’s hoped that a continuous-build program would lift Australia’s shipyard productivity. Although higher productivity won’t reduce wage rates (and will do the opposite if wages are linked to productivity), it’s still worth asking how much improvement is realistically possible.

The Anzac program is often held up as a paragon of efficiency, with ten vessels delivered for $9.3 billion in 2012–13 dollars. Lacking better data, labour use can be estimated by multiplying its 125-month duration by the reported 1,223 prime contractor and 1,337 subcontractor personnel in 1994–95. Using the former as a minimum, this implies between 2.5 and 5.3 million hours per vessel. Noting that an Anzac is only 60% the displacement of an AWD, this is hardly impressive if a ‘productive yard’ can build an AWD in 3 million hours.

In comparison, Denmark has recently built three frigates at a cost of US$325 million per vessel (PDF) or around US$383 million including the value of reused equipment from retired vessels. Labour use was 700,000 hours per hull. As the table below shows, the contrast with the cost of our AWD and Anzac programs is startling.

And the Danes didn’t cut corners; their vessels are larger and better equipped than our Anzacs—including with SM-2 missiles.

  Unit cost ($A million) Displacement
Cost per kg ($A/kg) Labour (hours) Crew
Danish Frigate 435 5,452 80 700,000 101
Anzac Frigate 932 3,600 259 >2,500,000 163
AWD 2,700 6,250 432 *6,200,000 202

*Average figure assuming that the second two vessels are each built using half the labour of the first.

How did they do it? To start with, the vessels were built in an efficient civil yard by an established workforce. In addition, lessons from civil design were adopted to make the vessels easy to build and cost-effective to maintain—hence the relatively small crew. And Denmark has access to low-wage module construction on the other side of the Baltic.

Australia’s naval shipyards would undoubtedly benefit from more efficient designs and construction techniques—and the Danes are already working with Canadian shipyards to help them to this end. Nonetheless, we’ll never have a commercial steel shipbuilding sector to leverage. And we’re poorly placed to access low-wage yards for module construction. If we build ships in Australia, we’ll pay a premium.

A practical alternative would be to build frigate hulls offshore and fit them out locally (as with the Canberra-class LHD). Doing so would allow us to focus on strategically relevant, high value-add areas such as systems integration rather than cutting steel.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Flickr user State Library of South Australia.

On economics and submarines

A lesson for submarines

According to the South Australian government, the Australian economy will be better off by $21 bn if our next generation of submarines is built in-country rather than purchased from overseas. With the Abbott government likely to make a decision about the submarines soon, the claim deserves close examination.

The underlying analysis is set out in a paper from the SA Economic Development Board  based upon commissioned work done by the official-sounding National Institute of Economic and Industry Research. It’s a short paper, running to only nine pages, and sparse in detail. Read more

The paper compares two options:

  • purchasing 12 submarines from overseas and performing only light maintenance on the boats in Australia;
  • building 12 submarines in Australia and performing both light and heavy maintenance in Australia.

The options posited immediately skew the analysis by assuming that with the foreign build option, heavy maintenance would be done offshore. It fact it would be feasible and advantageous to perform heavy maintenance in-country. In case there’s any doubt, we successfully executed an extensive mid-life upgrade of the British-built Oberon class boats.

As a starting point, the paper assumes that it would cost $20 bn to acquire 12 boats irrespective of where they are built at the baseline exchange rate of 92c to the US dollar. Thus, at today’s exchange rate of 88c, we already face a $900 million premium for a foreign build.

But recent experience demonstrates that there’s a substantial premium associated with building ships in-country (albeit one that depends on the prevailing exchange rate). As Andrew Davies put it, in the case of the $8.1 bn Air Warfare Destroyer (AWD) project, we’re getting three ships for the price of four, not counting recent cost blowouts and the lost value of increasingly delayed delivery. Estimates of the effective rate of assistance for the Landing Helicopter Dock and AWD programs come in at 70% and 33% respectively.

Not only is the higher up-front cost of local construction ignored, but the analysis unreasonably privileges future spending by omitting a net-present-value calculation of costs—which matters a lot given the unrealistic assumption about off-shore heavy maintenance and the 40-year time-horizon of the model.

The SA paper also ignores the ‘agency’ problems of local build. First, it can be desperately hard to get acceptable productivity from a domestic monopoly—as our sorry experience with submarine maintenance shows. Second, and as we’ve seen, an incumbent local supplier will form a natural alliance with unions and the state government to shift risk and cost increases back to taxpayers.

The SA paper then makes matters worse by modelling the economic impact via an input–output model. One of us has already blogged about the shortcomings, but the essential features are easy to recount.

The problem’s best explained by thinking of a ship built in Australia. The workers and local subcontractors will receive income, which they will largely spend on other locally-produced goods. By using data on the inputs and outputs of Australian producers of those goods, it’s possible to trace the direct and ‘multiplier’ effects of the spending on GDP and tax revenue.

That’s fine, but such an analysis ignores the alternative use of the labour and other inputs—it assumes they’ll sit idle if our hypothetical ship isn’t built. In reality, market forces will redeploy them elsewhere in the economy where they will contribute to GDP and pay taxes. That’s especially true in any long-run scenario—and this modelling stretches over 40 years.

The unreality of input–output modelling is well understood, so more sophisticated general equilibrium modelling is the standard approach for addressing long-run ‘what if’ questions about policy. The SA paper rejects general equilibrium modelling on the grounds that ‘no capacity constraints are anticipated in the labour market’. That is, it assumes that there will be a pool of unemployed in Australia for the next 40 years who, but for the opportunity, have the aptitude to become highly skilled engineers and trades persons. Indeed, as there are no ‘ramp up’ costs in the model, it assumes all these skills and resources already exist—in obvious contrast to the findings of the RAND study.

If the economy really was as static and unresponsive as assumed in input–output modelling, we could never have absorbed the resource boom. Nor would we ever have recovered from the removal of tariffs on cars, footwear and clothing. But we did, and the economy responded with new jobs in new areas. More importantly, consumers came to enjoy cheaper prices. There’s a lesson here about buying submarines. The economic argument for mandating local construction is ultimately no different to the neo-mercantilist arguments which sought to hold back productivity-boosting reforms of the 1980s and 90s. Then as now, the focus should be on the overall benefits rather than those concentrated in the hands of a few.

Henry Ergas is a senior economic adviser, Deloitte Access Economics, and professor of Infrastructure Economics, University of Wollongong. Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Flickr user sea turtle.

South Australian defence industry summit

Start lineI was pleased to be invited to speak at the South Australian Government’s Defence Industry Policy Summit (PDF) earlier this week. I was invited in my role as a member of the Defence White Paper Expert Panel, and was asked to help set the scene for the discussion that followed. Here’s what I told the meeting.

Thanks for the opportunity to be here today. My topic is the Defence White Paper process, but I’m not able to say much about that as it’s still very much a work in progress. So let me give you the response I give everyone who asks me how it’s going. ‘It’s everything I expected it to be’.

In terms of this gathering, I’m not sure that the DWP is the most germane document. There are several important pieces of policy work going on in parallel, some of which will have at least as large an impact, particularly the development of a Defence Industry Policy Statement (DIPS), a shipbuilding plan and the First Principles Review of Defence’s organisation. Development of the DIPS is something that I and my Expert Panel colleague Mike Kalms were asked to take on by the Defence Minister here in Adelaide back in June. Read more

As a result of that, we’ve been touring the country to consult with industry groups and making site visits. We’ve heard some clear and consistent messages along the way from industry, and I’ve found some of the visits to be real eye-openers. I’ve been impressed with the industry capability and capacity I’ve seen in various places. That will all help inform the DIPS.

As for the DWP, I think it’s important that the discussion that ensues today takes into account the environment in which work is proceeding. Firstly, the federal government has made it clear that it’s going to continue to make major capability decisions. It has committed something like $20 billion to acquisitions such as the F-35 Joint Strike Fighter, P-8 Poseidon maritime patrol aircraft and the Triton surveillance drones. By doing so it’s avoiding the bottleneck in projects that’s accompanied previous DWPs—sometimes as much as 18 months of deferred decisions, which has a flow-on effect to ADF capability and to industry work-flow.

Second, it’s possible that major decisions will be made about shipbuilding and submarines prior to the DWP release. It’s also possible that they won’t, and I can say with high confidence that no decisions have been made to date. I think it’s fair to say that there are inclinations, but there’s still time for the sort of submission that will come from this meeting to influence the process.

Third, there’s the budget situation. In its first budget the government made good on its promise to increase defence spending. If it sticks to its pledge to reach 2% of GDP by 2023/24, Treasury forecasts suggest that the budget that year will be around $45 billion in today’s terms. That compares to this year’s $29 billion, amounting to an additional $16 billion to invest. That’s a lot of additional capability that can be acquired, and a lot of industry support to be purchased. There should be plenty of opportunity for industry. Not so much in the first few years, as there’s a shortfall from the underfunding of the 2009 DWP that has to be made up, but in the years to come there’ll be lots of new investment.

Finally, but possibly most importantly, there’s a whole-of-government policy environment that has to be taken into account. That’s worth studying for clues about government thinking on industry and innovation. A good place to start is the new Industry Innovation and Competitiveness Agenda (PDF) released last week. It had several policy objectives of relevance here, most notably boosting competitiveness and fostering ‘excellence, not dependence’. It also identified five growth sectors, which represent areas of comparative advantage in the Australian economy. The one of most relevance to defence is ‘advanced manufacturing’,

The Agenda observes that Asian countries are increasingly reducing trade barriers, reducing inefficient public spending, reducing taxes and improving competitiveness. In that environment, Australian industry will have to be innovative, be working at world’s best practice standards, nimble and—in the defence space—provide a capability-edge for the ADF. When putting forward business cases for defence industry investment, they’ll need to be couched in terms of competitive advantage and capability edge, not just ‘net benefit’, however calculated.

Finally, let me swap hats and become an ASPI commentator for a minute. As those of you who read The Strategist—which should be required reading—would know, I was much impressed by the productivity gains I saw in local shipyards recently. The touch labour productivity on the AWD is showing a learning of about 20% between vessels one and two, with a projection of between 10 and 15% from vessels two to three. That’s close to world standard.

Similarly, the Collins availability is much improved, suggesting that the Collins story is more about lack of resources than poor industry performance. Actually, it’s probably a combination of both, but increasing resources has enabled better performance. ASC has some way to go to be world’s best practice standard, but the trend is good.

One final comment. When I read today’s press clippings, I saw the call for a competition for the design and construction of the future submarines. As I’ve said before, that’s the way to do it.

Andrew Davies is senior analyst for defence capability and director of research at ASPI. Image courtesy of Andi Sidwell.

Defence projects, jobs and economic growth

HMAS Anzac under tow as it prepares to re-enter the water from Henderson Naval Base where it spent twelve months undergoing an upgrade.

In a recent post, Andrew Davies explained how the government ignored Defence’s advice and chose the MRH90 over the Black Hawk helicopter—presumably because the former offered more for local industry.

There’s nothing intrinsically wrong with considering industry factors in defence procurement. As John Harvey reminded us, a local preference can legitimately be based on defence self-reliance and/or broader economic benefits. Consistent with this, government announcements routinely tout the economic benefits of defence projects. For example, this year’s F-35 announcement said:

The acquisition of F-35 aircraft will bring significant economic benefits to Australia, including in regional areas and for the local defence industry with more jobs and production for many locally-based skilled and technical manufacturers.

The message is clear; the more work that’s done in Australia the better. In the case of the F-35, it’s likely true. Rather than rely on offsets, Australian firms compete with foreign manufacturers to supply the global F-35 program so that only internationally competitive firms thrive. In other instances, local sourcing occurs absent foreign competition and at a sizable cost premium, such as the troubled Air Warfare Destroyer Project where we are getting three vessels for the price of four. Read more

What’s the lure of having work done locally? Apart from expectations of achieving greater self-reliance and more cost-effective through-life support (each a canard for another post), decision-makers probably believe that there’s a net economic benefit from having work done in Australia even at a premium.

The notion that local production delivers an economic benefit has been cultivated by those eager to avoid foreign competition. DefenceSA, the South Australia Government’s defence lobbying arm, has produced two glossy publications (here and here) that extol the economic and industry benefits of local shipbuilding.

The DefenceSA reports quote an economic analysis of the Anzac Ship project commissioned by the Australian Industry Group in 2000. The scanned copy of report can be found here (PDF) and its companion report on the Huon minehunter project is here (PDF). The reports employ two methodologies to estimate the economic impact of projects: input-output multiplier analysis and general equilibrium modeling.

Multiplier analysis estimates the gross economic impact of spending, and the table below summarises the key results from the Anzac and Huon reports:

Input-Output Multiplier analysis of recent major naval construction projects



National output


Anzac frigates

$5.6 billion

$10.9 billion


Huon minehunters

$1.0 billion

$1.7 billion


Impressive numbers indeed! If only the world was so simple; multiplier analysis overestimates economic impacts by ignoring (along with much else) constraints on, and alternative uses of, inputs to production. For example, multiplier analysis assumes that each and every person employed by the project would be unemployed had the project not occurred. The Productivity Commission released a paper on the uses and missuses of multiplier analysis in 2013.

Mindful of the limitations of multiplier analysis, the Anzac and Huon reports also used general equilibrium modeling to estimate the economic impact taking account of input constraints on the Australian economy as a whole.

General equilibrium modeling of recent major naval construction projects



GDP increase

Jobs increase

Anzac frigates

$5.6 billion

$3 to 7.5 billion


Huon minehunters

$1.0 billion

$887 million


Unlike the input-output analysis, the estimated boosts to GDP and employment in the table above are net increases across the entire economy. How much confidence can we have in those estimates? Comparison with analogous estimates in a 1994 Industry Commission report are informative. Depending on the assumptions made—none of which were unreasonable—an increase in local defence sourcing could result in either an increase or decrease in GDP and employment. Confused yet?

As best I can tell (not being an economist) two assumptions drive the results. First, the extent to which employment is held as a fixed constraint in the model. Second, the assumed productivity enhancement arising in firms engaged in the project. Weak employment constraints and higher productivity yield greater benefits, and vice-versa.

Given ongoing strong competition for skilled labour and the low productivity of (at least) the naval shipbuilding sector, recent local purchases such as the AWD have probably not had anything like the bountiful impact claimed by the Anzac and Huon analyses—certainly nothing like what would be needed to cover the substantial premium being paid.

Nonetheless, we should be wary of definitive claims either way about the economic impact of buying defence equipment locally. But with $78 million already committed to progress a local build of frigates to replace the Anzacs (wastefully early), the government needs to get some evidence-based advice on the economic costs and benefits of local construction sooner rather than later. As I’ve suggested in the past, the Productivity Commission would be a good place to start.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Department of Defence.

Future frigates: hasten slowly

HMAS Perth transits through the Southern Indian Ocean as an Orion P-3K from the Royal New Zealand Air Force searches for debris as part of Operation SOUTHERN INDIAN OCEAN.My colleague Mark Thomson despairs over the prospect of the early replacement of Navy’s Anzac frigates on cost-effectiveness grounds. He’s probably right, but I worry instead about the possibility that the capability implications and project complexity have been underestimated.

Let’s start with the positives of the proposal to develop the Navy’s future frigates around the basic hull and mechanical components of the air-warfare destroyers (their naval designation is DDG) currently under construction. The first—and, in my opinion, the best—reason was well articulated by the Chief of Navy in his ASPI White Ensign Dinner speech, when he pointed out the virtues of commonality of systems across the fleet. For a 52-ship Navy, there’s a surprisingly large number of designers and suppliers in the support network.

Second is the potential for naval shipbuilding to become an ongoing program, rather than a stop/start process. Every new program comes with its own start-up costs, both the direct costs of the people and infrastructure required and the indirect costs of an inexperienced workforce. The AWD/DDG program shows only too clearly how much grief that can cause. By the time a number of ships have been rolled off the line, most of the initial bugs are sorted out and efficient production ensues. By the time the tenth Anzac was launched, production was humming along nicely. Read more

Both of those arguments will stand or fall on the numbers; commonality and continuity aren’t ends in themselves, but ways to achieve economies. For now I’ll leave that to Mark, but I’ll make the point that any economic argument for local shipbuilding should consider through-life costs. The maintenance of Navy’s vessels is almost by definition a local activity, and there’s the possibility of synergies with local construction.

Balanced against those potential advantages is the potential disadvantage of a large scale, long term investment in local naval shipbuilding industry, in which the political stakes lock in a substantial part of the force structure, reducing the discretion future governments have. (Mark and I made this observation in the context of proposed rolling production of submarines.) No doubt Navy and the shipbuilders would love that development, but it’d amount to a long-term bet on the enduring demand for particular platform types.

Turning now to the capability and project management aspects of the recently announced future frigate work:

… preliminary design work … will focus on continued production of the current AWD hull, suitably adapted and utilising capabilities from the cutting-edge Australian companies CEA Technologies Australia and SAAB Combat Systems.

Let’s start with some basics. The seakeeping and stability of the 5,000+ tonne DDGs depends on a number of design factors, not least the distribution of weight in the superstructure and masts. Swapping out many of those systems for new ones isn’t as simple as it sounds. Additionally, the new frigates are intended to be ASW specialists, and will presumably need two helicopters and their associated hangars and support facilities. I’d guess that some of the real estate required will come at the expense of existing DDG systems—maybe the frigates won’t have the full 48-cell vertical launch system? (Though more firepower is always useful.) So a fair proportion of the ship above the waterline will be new.

Those aren’t insurmountable problems, and it’s not beyond the wit of man to modify the existing designs to meet the new requirements. But they won’t be small changes; they’ll exceed the modifications to Navantia’s original design required to produce the Hobart class. If we want continuity at the conclusion of the AWD program, it’d be a challenge to achieve a stable design and the required production engineering in time.

Turning to the systems, the air-defence solution developed for the Anzacs is rightly being proclaimed a success by Navy and the contractors involved. The Saab 9LV combat management system/CEAFAR radar combination is a terrific local innovation. But it doesn’t have some of the features that might otherwise be identified as requirements for the future frigates. For example, the Aegis system on the DDGs is integrated with the Cooperative Engagement Capability which allows the vessel to participate in third-party targeting with other vessels and the Wedgetail AEW&C. While the Anzac air defence solution will provide some capability against ballistic missiles in their terminal phase, if the full range of ballistic missile defence capability is required, the frigates would need sensors with an exo-atmospheric capability and SM3 missiles for the engagement.

Again, those probably aren’t insurmountable problems. But they’d present significant development and systems integration challenges—hence cost and schedule risks. The alternative is to do without those capabilities, which is a reasonable option, but any such trade-offs must be well understood by decision makers. It’s possible that pursuing a ‘quick and easy’ future frigate will prove to be anything but, and it might come with larger than expected capability compromises. One potential approach is a staged development, with two or three early ships being essentially larger Anzacs, and adding more capability into the larger hulls later—that’d certainly be less risky than shooting high from the start.

Andrew Davies is senior analyst for defence capability and director of research at ASPI. Image courtesy of Department of Defence.

Shipbuilding—Australian style

Anzac class frigate HMAS Perth at the International Fleet Review,  October 2013. Minister for Defence, Senator David Johnston, has announced the government would 'bring forward preliminary engineering and design work necessary to keep open the option of building the future frigate in Australia'.Last Friday, the defence minister announced no fewer than three shipbuilding initiatives.

First, to the dismay of the Australian Manufacturing Workers Union (PDF) and the indignation of the opposition, the government announced that it would seek bids from Spain and Korea to build two new replenishment vessels for the RAN. The new vessels will replace the ageing replenishment vessel HMAS Success (18,000 tonnes) and the modified commercial tanker HMAS Sirius (47,000 tonnes).

Although the vessels could’ve been built in Australia, it makes sense to go offshore. Not only would a local build require new infrastructure, but the low productivity of local yards would further drive up the cost. Given the benchmark of the AWD, where we’re getting three vessels for the price of four (and counting), the local premium would be upwards of 33%.

Nonetheless, the vessels won’t come cheap. The Spanish spent around A$350 million dollars to build SPS Cantlarbia (19,000 tonnes), while the British have ordered four Tide Class vessels (37,000 tonnes) from Korea for around A$240 million each. Defence’s 2012 estimate for the two vessels (PDF) was above $1 billion, so the taxpayer is at least a couple of hundred million dollars ahead. Read more

The government also announced plans to build more than 20 steel-hulled patrol boats in Australia. These vessels will replace the 22 boats currently operated with Australia’s assistance by 12 Pacific island states under the Pacific Patrol Boat Program. The specification of steel hulls will disappoint Australia’s highly-capable aluminum shipbuilders, but it has probably been justified by the need for robust, easily-maintained vessels.

The local sourcing of the patrol boats looks to be a sop to Australian industry; Asian shipyards could undoubtedly build the vessels much more cheaply. What’s more, the small size and simple design of the vessels will do nothing to nurture the high-end skills needed for future local projects such as the new submarines.

To make matters worse, the Minister has said the project will ‘generate additional work for yards around Australia’. Thus, rather than capturing economies of scale at a single site, work will be shared around the country, resulting in duplicated fixed costs and multiple company overheads. The only consolation is that the slug to the taxpayer from the patrol boats will likely be less than the saving on the replenishment vessels. Viewing the former as the political quid pro quo for the latter, there’s still a net gain.

Without doubt, the most interesting announcement was that the government would ‘bring forward preliminary engineering and design work necessary to keep open the option of building the future frigate in Australia’. Taken at face value, that announcement is difficult to fathom. A replacement for the Anzac frigates has long been planned for the end of the 2020s, and the prevailing assumption has always been that the vessels would be built locally. To achieve that, the 2012 Defence Capability Guide (PDF) planned on first-pass approval around 2019-20 and second-pass around 2022-23. So there’s plenty of time for a local build.

Rather, the option that’s being kept open now is a specific proposal that industry has been pushing quietly behind the scenes. The suggestion is to take the combat system and radar developed for the Anzac frigates by the Australian companies CEA Technologies Australia and SAAB Combat Systems, and to incorporate them into hulls like those currently being built by ASC for the new destroyers.

As well as leveraging the highly successful work done on the Anzac frigate upgrade, the proposal has the potential to provide continuity of work for ASC and its subcontractors. By doing so, it’s argued, hard-won productivity gains on the AWD project (assuming they eventually materialise) can be used to reduce the cost of the future frigates. What could be better—the incumbent firms each get a piece of the pie and the taxpayer saves some money?

But wait a second. On known plans, substantive work on AWD fabrication will end long before it’s necessary to start work on building the Anzac replacements. Even after the two-year delay to the AWD, fabrication will have ended by 2018 and work on the new frigates isn’t due to start until post 2022. So what’s going on?

A hint can be found in Defence’s 2013 Future Submarine Industry Skilling Plan (PDF) (subtitled A Plan for Australia’s Naval Ship Building Industry). Turn to page 170 and look at Scenario 7. There’s the solution: we can achieve continuity by retiring the Anzacs early. The previous government confirmed this when it talked about ‘bringing forward the replacement of the current Anzac Class frigates’.

There’s no way that marginal productivity gains from continuity will offset the cost of recapitalising the frigate fleet four or five years early. While other nations are looking at how to keep their vessels in service for longer, we’re doing the opposite just to keep our shipbuilders in profit for longer. I despair.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Wikimedia Commons.

F-35B JSF for the ADF—a viable option in the 2015 White Paper? (Part 2)

Three F-35B Lightning II Joint Strike Fighters with Marine Fighter Attack Squadron 121, 3rd Marine Aircraft Wing, fly in formation during fixed-wing aerial refuelling training over eastern California, Aug. 27, 2013. In my last post, I considered the operational and technical challenges of Australia acquiring F-35B STOVL Joint Strike Fighters and operating them from the Canberra class LHDs. In an ideal budget environment, were the decision to acquire the F-35B in the 2015 Defence White Paper to be made, the Abbott Government would also acquire two or three dedicated aviation support vessels to support them, and leave the LHDs purely for undertaking amphibious operations. But as the May 2014 budget has made clear, Australia doesn’t live within an ‘ideal budgetary environment’ and it seems unlikely additional ships will be forthcoming. If Australia does acquire the F-35B, they’ll have to operate from the LHDs (with all the technical and operational challenges that that would involve) or from forward land-bases as part of an expeditionary operation. Read more

I also raised the issue of how the F-35B would be used in relation to the declared Principal Tasks in the 2013 Defence White Paper. In considering the actual implementation of the Principal Tasks, the question of where the ADF might operate, against which powers, and under what conditions is important. Strategy is practical—not theoretical—and Australia’s maritime strategy has to have utility in the real world if it’s to be credible. Despite the 2013 White Paper’s rather rosy view of China’s role in Asia, it’s becoming clear that China’s rapid military modernisation, its assertive behavior in the East and South China Sea, and the growing regional security dilemmas emerging in the form of regional military modernisation, will increase the risk of conflict in the future. In that future, the risk must be that Australia will be drawn into a regional conflict involving the United States and China.

In that scenario it’s likely that US military forces would have access to Australian military facilities in the north and west. It also seems plausible that the ADF, working alongside US air and naval forces, would be required to respond to Chinese attempts to deny US forces a sanctuary in Australia from which to conduct operations against China. That could involve Chinese forces seeking to contest Australian air and sea approaches, and launch attacks on US forces operating from Australian facilities. Based on language in the 2013 White Paper, the ADF’s response to such a challenge would be to ‘…deter attacks or coercion against Australia by demonstrating our capability to impose prohibitive costs on potential aggressors and deny them the ability to control our maritime approaches’. Furthermore, the ADF might also ‘…undertake operations against adversary’s bases and forces in transit, as far from Australia as possible. … using strike capabilities and the sustained projection of power by joint task forces, including amphibious operations in some circumstances’.

Does the F-35B STOVL JSF operating from Canberra class LHDs offer a viable capability in this scenario? The technical and operational challenges noted in my first post are real and can’t be ignored, and would need to be resolved for the F-35B/LHD combination to be effective. More broadly, a more serious risk is surface ship survivability in the face of growing antiship cruise missile threats from submarines and aircraft. The strategic geography of Asia makes anti-access warfare even more effective, especially for naval mines, missile-armed fast attack craft, and missile-armed submarines that the Chinese Navy is highly proficient with.

It’s in countering the advantages bestowed by strategic geography on an adversary practising anti-access operations where a small force of F-35Bs deployed on LHDs might play a significant role. The F-35 Joint Strike Fighter’s key advantages are purported to be stealth, integrated avionics and an ability to network with off-board sensors—all of which contribute to the pilot in the F-35 having an information advantage over an opponent, whether that opponent is in the air, on land or on the sea. If the F-35B is seen as a key node in an intelligence, surveillance and reconnaissance (ISR) network that contributes towards an expeditionary force gaining a knowledge advantage at the tactical level, then a force of F-35Bs on board LHDs will add to the joint task force survivability. Information gathered by the sensor systems can be exploited by the F-35B to attack detected targets, or the F-35B can act as a sensor in a ‘sensor to shooter’ link, with the ‘shooter’ being a naval vessel or a submarine. Furthermore, the F-35B can exploit austere bases on land—known as forward arming and refuelling points (FARPs)—to operate in support of naval task forces in archipelagic waters, thus easing operational challenges and risks for the LHDs.

Certainly, if the LHDs are to be sent forward, with the F-35B on board as part of an Australian effort to ensure air and sea control within our maritime approaches, they would need to be well protected by an accompanying naval task force. The risk is that much of the RAN’s existing operational strength could be absorbed by such a role, reducing its operational flexibility, or demanding greater investment in additional ships such as more AWDs. Suddenly, the 2% of GDP spending aspiration of the Abbott Government mightn’t be nearly enough, and so the fundamental challenge of matching strategic ends with national means becomes critical. Australia should begin its consideration of F-35B JSF for the LHDs fully aware of the potential follow-on costs.

In conclusion, there are risks associated with pursuing the F-35B STOVL Joint Strike Fighter for the ADF. The LHD/F-35B combination is certainly not a match made in heaven. Of the three variants, the F-35B is the least effective in terms of performance and payload, and the most expensive. Only a small number could be carried onboard the LHDs, and at the expense of other important capabilities. But an F-35B acquisition could offer the ADF a more flexible way to undertake the Principal Tasks, even in the face of growing threats from an adversary’s anti-access ability.

Malcolm Davis is assistant professor in International Relations and post-doctoral research fellow in China-Western Relations at Bond University. Image courtesy of Flickr user Marines.